Fed Chair Just Made this Case for Gold

Photo by Wikimedia.orgCC BY | Photoshopped

In addressing the distressed economy, Jerome Powell made the case for more government stimulus. Here’s why one author argues it will be great for gold.

On Wednesday, Federal Reserve Chair Jerome Powell gave a speech addressing the difficulties that surround both the domestic and global economy. As expected, the speech had little optimism to it and immediately pushed the stock market down. In the meantime, gold continued to test new highs, having most recently climbed above $1,750 during Friday’s trading session.

As FXEmpire’s Arkadiusz Sieron notes, the closest to optimism one could glean from the speech was Powell’s reveal that the Fed would keep interest rates in positive territory. Although the chair dismissed the negative interest rates of the European Central Bank and the Bank of Japan as dubious experiments, the fact remains that Treasuries have posted some of their all-time low showings even before the coronavirus.

From there, Powell went to some lengths to detail just how bad the situation has gotten from a purely economic standpoint. The chair noted that lawmakers were not only struck by the magnitude, but also the speed at which the pandemic had engulfed all layers of the economy, likening the crisis to the worst of its kind since World War 2.

What was already a decline in economic activity was greatly aggravated by the coronavirus, with Powell noting that any job gains made over the past decade have been erased. Furthermore, the chair revealed that the pandemic caused a loss of 20 million American jobs in the span of just two months.

The rest of Powell’s speech struck a familiar chord, as the chair warned people not too get overly anxious with expectations of a recovery and warned that a V-shaped recovery, or a quick turnaround, is unlikely. Instead, Powell and his team expect the coming rebound to not only be slow, but riddled with uncertainties.

Addressing government spending, Powell seemed satisfied with the Fed’s lack of hesitation when it came to issuing their trillion-dollar stimulus check. The chair said that the trillions of dollars printed thus far might not be the Fed’s final response on the matter, and that the central bank is open to more stimulus if the need arises.

Likewise, during the speech, Powell appeared to urge Congress to open the door for more fiscal spending. The federal government has already created a massive deficit, moving the budget from a $160 billion surplus in April 2019 to a deficit of $737.9 billion during the same month this year.

Pointing out that the Fed deals more with lending than it does with spending, Powell seemingly wasn’t content with the $2.9 trillion spent on mitigating the effects of the pandemic, believing more support could be in order. In short, the speech at the Peterson Institute for International Economics was one of a contracting economy, uncertain recovery, currency debasement and piled-up debt, all major tailwinds that have kept gold breaching one high after another over the few past weeks.

Gold Stands to Soar in Midst of “The Great Lockdown”

Photo by Wikimedia.orgCC BY | Photoshopped

Global economic growth is projected to fall below -3% this year, and it’s exactly why Frank Holmes argues that more people must own gold. See his argument here.

As Forbes contributor Frank Holmes points out, “The Great Lockdown” isn’t just a colloquialism used to describe the current state of affairs. It is a term that the International Monetary Fund (IMF) itself has come up with to describe the economic picture, along with such dismal outlooks as predicting that the world is headed towards the worst recession since the Great Depression. And, with global economic growth projected to fall below negative 3% this year, they have no shortage of data to back up their forecast.

To Holmes, this is a wake-up call that signals it’s time for every individual to focus on preserving their savings. As evidenced by the action in the gold market so far, plenty of people around the world have indeed recognized this ominous signal. Gold has climbed roughly 13% so far this year and quickly made precious metals one of the best-performing asset classes. A look into this month’s top searches on search engine also shows that gold has piqued more interest than it has at any point over the past decade, including when the metal reached its all-time high of $1,900 in 2011.

With its exceptional performance thus far, many experts and analysts have been calling for prices that even the bullish forecasters wouldn’t have dreamt of a year or two ago. Bloomberg commodity strategist Mike McGlone recently noted that gold seems to be aiming for a reversion of its long-term mean versus the S&P 500 Index, a move driven largely due to the unprecedented amount of monetary stimulus currently taking place. If true, gold would undoubtedly move on to new highs, with Holmes highlighting a range of $2,800 to $3,000 based on the S&P 500’s current mean.

Perhaps the most notable part of this analysis, however, is that a mean reversion of this kind is far from a hypothetical scenario. In May 1990, gold and the S&P 500 were both trading inside a range of 330 to 360. For a more recent example, March 2013 also saw gold and the S&P 500 trade within a 1,500 to 1,600 range, a roughly one-to-one ratio. This makes the scenario of gold climbing to $2,800 and above in the short-term a very realistic possibility backed by historical precedent.

Yet despite the clear flock to gold and extremely bullish indicators such as this, Holmes thinks far too many people remain severely underweight on the metal. A study done by the World Gold Council (WGC) last year showed that commodity indices have a minimal gold weighting, meaning that investors whose exposure through gold comes by way of funds only receive a meager amount of benefits from an outperforming asset.

Instead, Holmes recommends a much more direct approach to owning the metal, one that involves at least a 10% allocation within a portfolio with a sizeable emphasis on physical gold. While some people might feel as if they already missed their entry point due to the strength of gold’s gains so far, Holmes notes that both price forecasts and economic predictions suggest that this is far from the case.

Jim Rickards Warns of Complete Economic Freeze

Photo by Flickr.comCC BY | Photoshopped

If we reach an “Ice-9” scenario that he has alluded to in the past, here’s what the analyst says may be in store for the financial markets and precious metals.

In a recent interview with Kitco, renowned finance author Jim Rickards spoke about the state the world currently finds itself in, both economically and in an all-encompassing sense, and what individuals can do to preserve their wealth during a time of panic and when faced with shutdowns across the board.

Rickards’ books frequently feature a warning theme where the expert cautions investors that the usual band-aid methods applied by central banks to fix ailing economies, such as pumping liquidity, are just that and aren’t going to work indefinitely. The coronavirus, however, represents a threat to the global economy that neither officials nor investors are prepared to deal with.

Rickards cites prominent immunologist Anthony Fauci to highlight the fact that the markets are trying to price in a crisis whose magnitude they have yet to be made aware of, resulting in cases like the stock market’s ongoing search for a bottom. Making matters worse, Rickards thinks we might be nearing an “Ice-9” scenario that he sometimes refers to in his books, alluding to a complete economic freeze. And although some fund managers have already requested a 30-day shutdown, Rickards notes that measures like these would prove completely ineffective.

A NYSE shutdown would trigger a collapsing effect, says Rickards, with investors trying to get their hands on cash from money markets, brokerage accounts and banks as each shuts down after the other. Before long, the global economy would be in complete lockdown and no interventions by the Federal Reserve or other central banks would have an effect.

This brings Rickards to the inescapable reality that owning physical gold and silver is one of the few reliable ways of preserving access to liquidity, especially if things progress to a point where moderate-scale evacuations begin to occur.

Rickards dismisses economic views that owning bullion in these scenarios is a bad idea due to potential deflation, pointing to the stretch between 1927 and 1933. As Rickards notes, this six-year span was the most deflationary period in U.S. history, yet gold rose by 75% during that time. Furthermore, gold’s prices were still fixed in 1933, making Rickards believe that a similar deflationary bout in present day would usher in far greater gains.

Regardless of how the situation develops, Rickards urged people not to wait when it comes to acquiring precious metals, saying that many are already having difficulties trading in contracts. On the flip side, Rickards said that the keenest of traders are still waiting for gold’s price to bottom out before going all-in, as they expect the precious metals market to have a prolonged bull run similar to that between 2008 and 2011. Rounding up his advice, Rickards also suggested that people keep some of their gold and silver easily accessible to maintain flexibility in a highly uncertain environment.

Gold Settings Its Sights on $1,900

Photo by Wikimedia.orgCC BY | Photoshopped

The yellow metal is up about 20% in the last year, but at least one analyst says that it will soon go much higher. Here’s why he thinks it may set a new record.

In a recent interview with Kitco, Peter Reznicek, head trader at ShadowTrader, spoke about the extremely bullish signals that gold has been sending over the past six months. The metal is currently riding on six-year highs, oscillating in a narrow trading range above last year’s high of $1,553.

While the jump of roughly 20% in gold prices over the past year  has enticed many investors, Reznicek says that the price spike is merely the beginning of something very exciting in the market. The veteran trader explained that he favors long-term charts and, when assessing gold, looks as far back as two decades ago to get a better idea of where the metal is headed.

Observing the market from this perspective, Reznicek found it clear that last summer marked a breakout from a prolonged range bound pattern. While some view gold’s retracement from the $1,600 level as a sign that the metal might be moving too fast, Reznicek isn’t the least bit concerned and assures investors that gold is on a clear upwards trajectory.

As Reznicek points out, gold prices soared around mid-2019 before moving sideways over the next couple of months, which is a bullish sign in and of itself. Gold’s strong positioning above last year’s highs suggests that the metal is enjoying excellent support around current levels and could be one or two drivers away from a major breakout.

Reznicek has little doubt that gold bottomed out ahead of the summer price jump and that, from a longer-term perspective, the metal is preparing to shoot far above current levels. Having been bullish on gold for some time, Reznicek unequivocally advised investors that long gold is the position they want to be in right now.

In terms of price levels, Reznicek pointed to $1,613 as the next key resistance level that gold shouldn’t have a hard time breaching. Over a slightly longer period, Reznicek said that gold investors should keep an eye out for the all-time high of $1,900 as a very reachable level, while leaving open the possibility that the metal could end up even higher in the near future. Reznicek’s prediction echoes that of several other guests on Kitco’s show, many of whom are predicting that gold will indeed recapture levels last seen in 2011 and possibly leapfrog them.

Speaking about short-term drivers, Reznicek singled out the coronavirus as a potentially important tailwind for gold. Although the trader feels that the outbreak hasn’t influenced the gold market to a significant degree thus far, he noted that any significant market disruption related to the virus would definitely play into gold’s favor.

Gold Prices to Surge 30% in 2020, Says Bridgewater Analyst

On the back of a strong 2019, one analyst sees an even better year for gold in 2020. Here’s why he thinks the metal may surpass $2,000.

In an interview with the Financial Times, Greg Jensen, the co-chief investment officer at Bridgewater, shared his prediction for gold’s trajectory in the near future. The metal had most recently shot up above $1,600, the highest level in seven years, riding on high tensions between the U.S. and Iran. And although it has retraced since then, it remains perched above last year’s high of $1,553, last seen in 2013.

As great as gold’s gains have been thus far, Jensen sees a lot more positive price action ahead. In the interview, Jensen pointed out that the threat of a military conflict with Iran wasn’t the only source of concerns, as the metal had also been appreciating steadily amid ongoing trade disputes with China.

Like other experts, Jensen thinks that trade issues between the U.S. and China are far from resolved and will continue to prompt safe-haven buying, adding that the conflict with Iran likewise hasn’t fully simmered down. Furthermore, Jensen potentially sees a notable increase in geopolitical flare-ups ahead that could send gold climbing to $2,000 this year, above its all-time peak of $1,911.

Besides geopolitical uncertainty, Jensen expects central bank policies to remain supportive of gold, just as they had been in the second half of 2019. The metal began its steady climb at the beginning of summer, as central banks around the world suddenly turned dovish and followed in the Federal Reserve’s stead by slicing interest rates, which is generally seen as a major boon for gold. Since then, global negative-yielding debt has reached a dizzying peak of over $15 trillion, creating a dearth of safe-haven opportunities.

Jensen thinks that the Fed is likely to push interest cutting even further this year by possibly slicing nominal rates to zero in order to combat slowing growth and the looming threat of a U.S. recession, a red flag that became especially prominent in the second half of 2019. On the flip side, Jensen also sees the Fed potentially choosing to usher in a period of high inflation, giving gold another major price driver.

Jensen’s view is shared by several other notable fund managers, starting with his colleague Ray Dalio, the founder of Bridgewater. A long-time advocate of the yellow metal who favors a gold-heavy strategy for his top-performing fund, Dalio doubled down on his usual sentiment last year by urging investors to start buying gold amid what he sees as a paradigm shift with loose monetary policies across the globe. Around the same time, DoubleLine CEO Jeffrey Gundlach also stated that he is adamantly long gold due to expectations of a decline in the greenback’s value.

“Watch Gold” Among These 2020 Market Surprises

Despite being optimistic for the financial markets in 2020, one forecaster believes that gold prices may continue to rise in the new year. Here’s his rationale.

In an interview with CNBC, veteran forecaster and vice chairman of private wealth solutions at Blackstone Byron Wien spoke about his outlook for the next fiscal year. Known for his annual list of 10 surprises to look for in the market, the Wall Street expert chose to stick to tradition and withhold his predictions until January.

However, Wien did share some things regarding what to expect over the short and long term. While Wien didn’t go into his forecasts just yet, he singled out gold as a particularly interesting investment to watch for in 2020. Wien’s nudge towards gold stands out even more given the strategist’s general expectations for the coming year.

Despite geopolitical tensions and trade disputes, Wien isn’t too concerned that either will spill out into the coming months. Wien is optimistic regarding the early draft of a trade deal with China, a resolute Brexit and a simmering down of domestic political turmoil. While mostly bullish, Wien singled out a few possible risks on the horizon.

One would be the election of a candidate whose market policies radically differ from those of President Trump, which Wien thinks could end up causing significant upheaval to the economy. Another would be a scenario where the Federal Reserve gets caught by surprise inflation which, although unlikely, the stage does appear set for.

Over the longer term, Wien shared some notes about the pervasive issue of debt, including the federal deficit and the overall domestic debt. While the ever-expanding figures tend to be the eye-catchers, Wien explains that the U.S. economy has enjoyed an environment of low debt service rate. Although the national debt has quadrupled over the past two decades, the debt service has only gone up 25%. Wien finds this unsustainable and expects the market to eventually be shook by the coming of higher interest rates. On the other hand, Wien agreed with his hosts that any rise in U.S. interest rates is difficult to see in the near future, especially due to the amount of liquidity that central banks are currently working with.

Wien said that market participants are likewise preparing for a similar economic climate in 2020, a sentiment that has powered growth as of late. In contrast to Wien’s optimistic viewpoints, he pointed to gold as the asset to once again keep an eye out for. After an exceptional second half to the year, gold is up roughly 15% since the beginning of the year and has many forecasters calling for it to hit $1,600 in 2020.

The Narrative About Gold is Changing Again

Photo by Wikipedia.org | CC BY | Photoshopped

Fundamentals may be important, but one writer argues that an asset’s narrative often drives price – and he thinks gold’s current narrative is looking very rosy.

This year, gold and the U.S. dollar have moved up in tandem, which many have found to be a curious occurrence, as the two are supposed to be inversely correlated. To FX Markets’ Arkadiusz Sieron, however, the occurrence was not strange at all. As Sieron points out, in the absence of certainty, the markets will always be susceptible to sticking to whichever narrative is trending in an attempt to predict the unpredictable.

Mervyn King, a former Bank of England governor, wrote about how narratives can often completely dictate the flow of the global economy and the valuations of assets. As a particularly prominent example, King used the 2008 financial crisis to highlight how market sentiment was swayed seemingly overnight. As King notes, the buildup to the 2008 crisis was based on the narrative that excess borrowing and the housing bubble weren’t that big of an issue. As soon as the narrative changed and the status quo was no longer sustainable, a global recession broke out and asset prices were reinvented.

Despite its strong fundamentals that have held up for centuries, Sieron points out that gold is just as susceptible to market sentiment as other assets, if not more so. While the overall supply of the metal might be on a worrying decline and the global economy rests on shaky foundations, investors can still opt to favor the trending sentiment instead of hard data and ride the narrative for years on end.

Sieron singles out four main examples of how narratives dominated the gold market irrespective of fundamentals. First came concerns about inflation in the 70s that brought the price to above $600, followed by the notion that gold is a dated investment and should be pushed aside in favor of newer and better options, which went on throughout the 80s and 90s and brought the price back to nearly $200. By the end of the 20th century, however, it became clear that things weren’t nearly as rosy as they were portrayed. Concerns over mounting debt and a weakening dollar slowly pushed gold’s price up over the following decade, culminating in the metal’s all-time high of over $1,900 in 2011. From there, another narrative was ushered in, one of the crisis being behind us and the economic recovery being underway, with gold prices once again moving downwards in response.

A little less than a decade removed from 2011, however, Sieron believes that the narrative of optimism has nearly extinguished. Sieron views the metal’s spike to six-year highs this summer as the turning point of a new market trend, as investors once again grow wary of the various question marks and red flags. Yet this time, things could be different. While the era of negative yields and recessionary concerns brought in another bull market for gold, there is no way to swipe away the specter of record-high federal deficit and global debt, both issues for which there are no real solutions. This, coupled with signs that the U.S. dollar is losing its grip on the status of a reserve currency for the first time in decades, leads Sieron to believe that the newly-started bull market in gold could run indefinitely.

The Factors Behind Gold Price Resilience

Despite the recent pullback in the price of gold, this analyst outlines why the yellow metal has proven so resilient this year and why it will soon head higher.

Despite having pulled back as the year draws to a close, gold is still up more than 18% year-to-date. Forbes contributor Naeem Aslam examines the factors that made way for the yellow metal’s spectacular show of strength this year.

Aslam finds it particularly notable that gold has posted one of its best performances in recent memory alongside a climb in the S&P 500 Index. Normally, a greater appetite for risk investments translates to less interest in safety assets, but this has not been the case. A strong equity market usually acts as gold’s biggest competitor and headwind, yet investors have been keen to hedge their bets with plenty of gold.

One reason for this could be a lack of faith in the strength of the domestic and global economy. Various red flags have risen over the past few months to suggest a major crisis is on the way, not the least of which has been a Federal Reserve gauge that warned of a potential domestic recession in the near term. The disappointing US ISM manufacturing number released last week showed that U.S. factories are feeling the pressure of the U.S.-China trade war. The report joins dismal factory data from across Europe that suggests an economic contraction is underway. Aslam believes that the current state of affairs will eventually take down the labor market and that a trade deal will soon become a necessity.

Ultimately, however, Aslam finds the action on the charts to be the most telling. Gold’s technicals are currently boasting several optimistic signals, with perhaps the most significant being the formation of a bullish triangle. This move suggests gold prices could be headed above $1,650.

The drop in volatility in the gold market shows that traders have enough faith in the metal and are buying at a steady pace. Aslam notes that the reasoning behind this lies in the stock market’s conspicuous run and fears of a potential downturn.

This explains why gold has consistently returned to the $1,500 level after each dip, and Aslam sees the ability to cling to this key resistance level very much important to keep the gains going. Aslam added that momentum is clearly in gold’s favor despite happenings in other markets, and that traders are likely to keep pushing the action for the foreseeable future. With so many other factors propelling gold higher, such as global central bank rate cuts and general uncertainty, it shouldn’t be a stretch to see the $1,650 level that the chart is pointing to sooner rather than later.

The Odd Synchronized Rise of Gold and the USD (Here’s Why)

A rare set of circumstances has the dollar and price of gold rising together. One analyst has a theory for why it’s happening, and where gold may go from here.

Synchronized Rise of Gold and the USD

As MarketWatch’s Ivan Martchev points out, this year has seen a strange occurrence of gold rising alongside the U.S. dollar. Historically, a strong greenback has acted as one of gold’s biggest headwinds, as the metal is primarily priced in the U.S. currency.

However, this past summer, gold tested one resistance level after another, gaining as much as $300 so far this year. At the same time, the greenback continues to hover around all-time highs. To explain this phenomenon, Martchev explains how it’s important to look at the Broad Trade-Weighted Dollar Index, which takes in many more metrics than the regular DXY index.

Martchev notes that the dollar’s strength is no longer dictated solely by the Federal Reserve’s funds rate. Instead, the monetary policies of various economies across the globe have played a major role in holding the U.S. dollar up while also allowing gold to post its best performance in six years.

Negative-yielding bonds in Europe, a dismal Brexit situation and quantitative easing (QE) from the European Central Bank have all propped the dollar up. Yet these same factors are also highly beneficial for gold. The U.S.-China trade war and Beijing’s consequent devaluation of the yuan is another bullish component for the gold market, as the yuan’s depreciation pushes global central banks towards more quantitative easing. As Martchev notes, these QE programs have helped plunge various bonds into negative territory, leaving investors with less and less safe-haven options.

There is also the matter of excess fiat reserves in the global monetary system. While the ballooning of various central banks’ balance sheets, caused by central bankers purchasing their own bonds, has not yet led to an expansion of the monetary supply, gold enthusiasts remain hopeful that these money printing antics will eventually bring about hyperinflation and push gold to new highs. Although there hasn’t been a spike in inflation so far, the resulting negative-yielding bonds have proved to be enough of a booster for the gold market.

Martchev sees various venues for gold to continue its strong upwards momentum. According to him, a continuation of QE programs by the ECB and the new norm of negative-territory European bonds should lead to an additional 15%-20% gain in gold prices over the next 12 to 18 months, especially if the Federal Reserve shows an eagerness to employ QE of its own. Should a U.S. recession occur in the near-future, as many analysts and even the Fed itself have been forecasting, Martchev thinks gold will move to new all-time highs as Fed officials apply questionable policies to offset the domestic economic contraction.

Analyst: U.S. Debt and Record-Low Yields Are Driving Gold Prices

Although gold has had many drivers powering its remarkable summer upswing, Forbes contributor Frank Holmes highlights two tailwinds that could prove to be key players for the metal’s value in the short- and long-term: the ballooning U.S. debt and the record-low yields, both domestic and global.

In his analysis, Holmes points to some very concerning statistics regarding domestic debt. The federal budget deficit for the 2020 fiscal year has passed $1 trillion, an unprecedented development during a time of perceived economic stability. The figure goes in line with the constantly expanding U.S. national debt, which now sits at $22.5 trillion. Holmes is also wary of the latest estimate by the Congressional Budget Office (CBO), which forecasts a federal debt amounting to 144% of local GDP by 2049.

Regarding yields, it’s well-known that many top economies have sunk their bonds into low or negative territory, and the landscape looks very much alike on the corporate side. This has revived the issue of corporate debt, which was a major ingredient in the 2008 financial crisis. Large companies made full use of all-time low yields for corporate bonds, as they rushed to borrow as much money as they could. As Holmes notes, giants like Apple and Coca-Cola have been among the record 49 companies to borrow a combined $54 billion through the past Wednesday.

In regards to central banks, Holmes cites Rick Rieder, chief investment officer at BlackRock, who believes that the official sector has entered something he calls the “monetary policy endgame”. Recent years have shown that central bankers have no qualms about slicing rates into negative territory and employing as much quantitative easing (QE) as they wish. The latter point has sparked talks about currency debasement, with many investors feeling that previously-marquee fiat currencies are no longer instilling the confidence that they once did.

Rieder and Holmes agree that we are approaching an era where negative-yielding bonds and zero-yielding currencies will become the norm, each of the two being in infinite supply. In such an environment, investors will have to look elsewhere to protect themselves from an incoming global financial crisis.

Holmes has little doubt that gold is among the best asset to do just that. Its independence and cherished scarcity make it an ideal choice of a shield against dubious government policies. Yet gold offers more than just the assurance of wealth protection. While the metal recently sparked above $1,500 an ounce in spectacular fashion, Holmes thinks that the callous actions of central bankers, especially in regards to currency debasement, could bring its price to $10,000 an ounce in the coming years.